Advocacy

Business Tax and Parking Operations

Background

Legislation

The Municipal Government Act allows municipalities to assess and tax businesses in addition to the property tax. The methods of assessment can be based upon: (1) a percentage of the gross annual rental value; (2) a percentage of the net annual rental value; (3) storage capacity; (4) floor area; or (5) a percentage of the property tax assessment. To collect a business tax, the municipality must annually approve a business tax by-law specifying the method of assessment.

The Calgary Context

Calgary approves a business tax by-law every year. In 1999, Calgary switched from using a gross rental income method of valuation to the net income method. Also, beginning in 1999, business assessments are to be updated annually to reflect the market value of the assessed space for the preceding year. So, in 2002, the business value of your space should reflect a 2001 market net annual rental income.

The Problem

As a result of changing market values and valuation methods, business assessments have increased dramatically; 300% increases in assessments and taxes in 2002 are the norm.

The first attempt by the City to increase business taxes for parking occurred in 1999. A temporary compromise was reached which delayed the increases for 1999-2001. In response to these earlier attempts to raise parking taxes, a number of questions regarding the legitimacy of the business tax as it is applied to parking were raised and a lawsuit was launched by parking operators. 2002 will be the year that this issue comes to a head.

Industry Response

There are two separate actions being pursued by parking facility operators. They are:

- Assessment appeals by the individual parking operators that will go to the Assessment Review Board and the Municipal Government Board. - The Court of Queen’s Bench case which is seeking an order to squash the 2001 and 2002 Business Tax By-laws. - Both of the actions focus on the validity and applicability of the Business Tax By-law. Equity is also an issue in respect to the unequal application of the By-law to parking businesses in Calgary. Some parking facilities are assessed and some are not. Other facilities with parking spaces, like self-storage, are not assessed. And, the manner in which parking spaces are assessed is very different from that which occurs in other commercial facilities (e.g. office buildings, shopping centres, etc.).

Possible Outcomes

It is expected that the Court will decide the ultimate outcome. There are a number of possible outcomes, including:

No parking spaces will be assessable. In this scenario, only the parking kiosk, main offices and maintenance areas of parking operations would be assessed. As a result, approximately two percent of the $142 million in business taxes raised by the City of Calgary would have to be assumed by all business taxpayers in future years. All commercial parking spaces are assessable. The impact of this scenario is harder to project. The City would still have to decide, presumably with Court guidance, exactly which parking spaces are assessable and how they are to be assessed. Some redistribution of taxes would occur. The 2001 and 2002 Business Tax By-laws are declared invalid. This is probably the least likely scenario. In this instance, the City would have collected business taxes that they did not have the authority to collect. Again, Court guidance would probably direct the outcome.

The Status Quo remains. In this case, the City’s current assessment practices are confirmed by the Court. The increased assessments and taxes would continue to be applied to existing assessed parking facilities without recourse.

Business taxes are applied to a small minority commercial parking spaces in the City. Most of the spaces that are taxed offer short-term parking in addition to monthly parking. Most of them are operated by parking companies as opposed to property owners and almost all of them are located in the downtown. The overwhelming majority of commercial parking spaces in the City, however, are not taxed. This creates a great inequity in that must be corrected. A further inequity is created in relation to building owners. Landlords are only assessed only on the space that they occupy (e.g. building manager’s office); they are not assessed on the space that they rent to tenants. Parking operators are assessed for the spaces that they rent out. Another example involves self-storage operations were only the management office is assessed; the garages and parking spaces are not assessed.

The magnitude of the problem has increased significantly in 2002 because assessments and taxes have tripled. The City now collects more than $3 million in business tax from parking operations; this represents more than 2% of the entire business value in the City of Calgary. Impark’s businesses taxes have increased, for example, by over $1 million from $0.4 to $1.4 million. In response to this, legal action has been launched which challenges the 2001 and 2002 Business Tax By-laws as well as the basis of the assessment values. In addition, many 2001 and almost all of the 2002 assessments have been appealed to the Assessment Review Board/Municipal Government Board. Even if the courts confirm the legality of assessing parking spaces, the issues of equity and correctness will remain. The administration of “correct” assessments is almost impossible to sustain because of the ever-changing nature of parking operations, contracts, stall allocations etc. There has to be a better way. Rather than fighting our way through the system, we need to find a cooperative approach to solving this problem. Some direction from above would be very helpful in this regard. Ideally, parking spaces should not be assessed; only the office, maintenance and parking control spaces should be assessed. This solution mirrors current practices with commercial building space and would be easy for the City to administer. A minimal 2% redistribution of business tax would result. BOMA's Next Steps

BOMA Meets with Mayor Bronconnier and a delegation from the parking and building industry on Monday 22 April to present the arguements above with a view to gaining a more moderate approach. The principal issue is equity amongst all parking facilities.

Legislation

The Municipal Government Act allows municipalities to assess and tax businesses in addition to the property tax. The methods of assessment can be based upon: (1) a percentage of the gross annual rental value; (2) a percentage of the net annual rental value; (3) storage capacity; (4) floor area; or (5) a percentage of the property tax assessment. To collect a business tax, the municipality must annually approve a business tax by-law specifying the method of assessment.

The Calgary Context

Calgary approves a business tax by-law every year. In 1999, Calgary switched from using a gross rental income method of valuation to the net income method. Also, beginning in 1999, business assessments are to be updated annually to reflect the market value of the assessed space for the preceding year. So, in 2002, the business value of your space should reflect a 2001 market net annual rental income.

The Problem

As a result of changing market values and valuation methods, business assessments have increased dramatically; 300% increases in assessments and taxes in 2002 are the norm.

The first attempt by the City to increase business taxes for parking occurred in 1999. A temporary compromise was reached which delayed the increases for 1999-2001. In response to these earlier attempts to raise parking taxes, a number of questions regarding the legitimacy of the business tax as it is applied to parking were raised and a lawsuit was launched by parking operators. 2002 will be the year that this issue comes to a head.

Industry Response

There are two separate actions being pursued by parking facility operators. They are:

Assessment appeals by the individual parking operators that will go to the Assessment Review Board and the Municipal Government Board. The Court of Queen’s Bench case which is seeking an order to squash the 2001 and 2002 Business Tax By-laws. Both of the actions focus on the validity and applicability of the Business Tax By-law. Equity is also an issue in respect to the unequal application of the By-law to parking businesses in Calgary. Some parking facilities are assessed and some are not. Other facilities with parking spaces, like self-storage, are not assessed. And, the manner in which parking spaces are assessed is very different from that which occurs in other commercial facilities (e.g. office buildings, shopping centres, etc.).

Possible Outcomes

It is expected that the Court will decide the ultimate outcome. There are a number of possible outcomes, including:

No parking spaces will be assessable. In this scenario, only the parking kiosk, main offices and maintenance areas of parking operations would be assessed. As a result, approximately two percent of the $142 million in business taxes raised by the City of Calgary would have to be assumed by all business taxpayers in future years. All commercial parking spaces are assessable. The impact of this scenario is harder to project. The City would still have to decide, presumably with Court guidance, exactly which parking spaces are assessable and how they are to be assessed. Some redistribution of taxes would occur. The 2001 and 2002 Business Tax By-laws are declared invalid. This is probably the least likely scenario. In this instance, the City would have collected business taxes that they did not have the authority to collect. Again, Court guidance would probably direct the outcome.

The Status Quo remains. In this case, the City’s current assessment practices are confirmed by the Court. The increased assessments and taxes would continue to be applied to existing assessed parking facilities without recourse.

Business taxes are applied to a small minority commercial parking spaces in the City. Most of the spaces that are taxed offer short-term parking in addition to monthly parking. Most of them are operated by parking companies as opposed to property owners and almost all of them are located in the downtown. The overwhelming majority of commercial parking spaces in the City, however, are not taxed. This creates a great inequity in that must be corrected. A further inequity is created in relation to building owners. Landlords are only assessed only on the space that they occupy (e.g. building manager’s office); they are not assessed on the space that they rent to tenants. Parking operators are assessed for the spaces that they rent out. Another example involves self-storage operations were only the management office is assessed; the garages and parking spaces are not assessed.

The magnitude of the problem has increased significantly in 2002 because assessments and taxes have tripled. The City now collects more than $3 million in business tax from parking operations; this represents more than 2% of the entire business value in the City of Calgary. Impark’s businesses taxes have increased, for example, by over $1 million from $0.4 to $1.4 million. In response to this, legal action has been launched which challenges the 2001 and 2002 Business Tax By-laws as well as the basis of the assessment values. In addition, many 2001 and almost all of the 2002 assessments have been appealed to the Assessment Review Board/Municipal Government Board. Even if the courts confirm the legality of assessing parking spaces, the issues of equity and correctness will remain. The administration of “correct” assessments is almost impossible to sustain because of the ever-changing nature of parking operations, contracts, stall allocations etc. There has to be a better way. Rather than fighting our way through the system, we need to find a cooperative approach to solving this problem. Some direction from above would be very helpful in this regard. Ideally, parking spaces should not be assessed; only the office, maintenance and parking control spaces should be assessed. This solution mirrors current practices with commercial building space and would be easy for the City to administer. A minimal 2% redistribution of business tax would result.

BOMA's Next Steps

BOMA Meets with Mayor Bronconnier and a delegation from the parking and building industry on Monday 22 April to present the arguements above with a view to gaining a more moderate approach. The principal issue is equity amongst all parking facilities.